CONTRACT NO. V650C-617                                                 VABCA-5345

VA MEDICAL CENTER
PROVIDENCE, RHODE ISLAND

    Christopher M. Johnson, Esq., Kilcullen, Wilson and Kilcullen, Washington, D.C., for the Appellant.

    Patrick J. LaMoure, Esq., Trial Attorney; Charlma O. Quarles, Esq., Deputy Assistant General Counsel; and Phillipa L. Anderson, Esq., Assistant General Counsel, Washington, D.C., for the Department of Veterans Affairs.
 

    The Government has moved to dismiss this appeal, which was taken from a Contracting Officers final decision denying a $301,000 reformation claim by Promac, Inc. (Promac, Appellant, or Contractor). Promac seeks reformation of the contract based on certain alleged violations of the Federal Acquisition Regulation (FAR) by the Department of Veterans Affairs (VA or Government). The Government, relying on Whittaker Electronic Systems v. John H. Dalton, 124 F.3d 1443 (Fed. Cir. 1997), has moved to dismiss this appeal on the basis that Appellant failed to timely assert such allegations and thus waived the right to challenge the validity of the subject contract. Appellant opposes the motion, asserting that a contractor can bring a reformation claim even after contract completion, citing LaBarge Products, Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995). Further, Appellant maintains that waiver is an affirmative defense and is not a proper ground for a motion to dismiss.

 
    In June 1995, the VA issued an Invitation for Bids (IFB) No. 650-15-95 for the construction of a new research building at the VA Medical Center (VAMC), Providence, Rhode Island. The VAs final cost estimate was $3,075,000 for the basic scope of work with three deduct alternates estimated to reduce the cost to $2,768,000. At bid opening in August 1995, seven bids were received. The low base bid price was that of Promac in the amount of $3,119,000. The next lowest base bid was $3,122,000, with the other bids ranging up to $3,354,000.

    FAR 14.404-1, "Cancellation of invitations after opening," provides that after bids have been opened, award must be made to that responsible bidder who submitted the lowest responsive bid, unless there is a compelling reason to reject all bids and cancel the invitation. Subparagraph (c)(6) provides, inter alia, that invitations may be cancelled when all otherwise acceptable bids received are at unreasonable prices. Subparagraph (f) provides that when the agency head has determined that an IFB should be canceled and that use of negotiation is in the Government's interest, the Contracting Officer (CO) may negotiate and make award without issuing a new solicitation.

    Three days after bid opening, the VA sent a letter to all seven bidders notifying them that the IFB was cancelled because all the bids exceeded the available funds and that the procurement would be converted to a Request for Proposals (RFP) limited to the original seven bidders. Shortly thereafter, the VA issued RFP No. 650-26-95, incorporating the contents of the original IFB as amended and including 19 deductive items.

    Five of the original seven bidders submitted proposals. Promac submitted the low proposed price of $2,723,000, with an alternate deductive price of $2,519,000. In January 1996, the VA awarded Contract No. V650C-617 to Promac in the amount of $2,723,000. The contract called for a performance period of 400 days and Appellant subsequently performed the requirements of the contract.

    On January 27, 1997, Promac filed a $301,000 certified claim seeking reformation of the contract. That amount represented a portion of the $396,000 difference between its original bid of $3,119,000 and its final proposal of $2,723,000. The other portion, $95,000, represented the amount for which Promac adjusted its price as the result of certain changes to the project requirements. The $301,000 represented an adjustment which Promac believed was necessary to remain competitive due to the fact that its earlier bid price had been made public at the original bid opening. Promac asserts that it had submitted a reasonably priced bid, that the VA had violated the FAR by canceling the IFB and continuing the procurement through negotiations, that the VAs actions amounted to an illegal auction, that Promac suffered damages as a result of the VAs actions, and that Promac was entitled to reformation of its contract to the extent that its price was affected by the VAs FAR violations and the implied contract to treat bidders fairly.

    The CO issued a final decision in May 1997 denying the claim. The Governments position was that the original bids received were in excess of available funds and were considered unreasonable, based on comparison with the Governments estimate. The CO stated that the IFB was canceled and a contract negotiated in accordance with applicable FAR regulations. Further, the CO argued, the claim was untimely since it was filed a full year after contract award and seventeen months after Promac was notified it was the lowest offeror. This appeal followed and, in due course, the Government filed its Motion to Dismiss.

Although, strictly speaking, a defense of waiver is not
properly raised on a motion to dismiss (because it is an
affirmative defense to be asserted in a responsive
pleading under Rule 8(c) Fed.R.Civ.P.), when the
issue is potentially dispositive it is logical and efficient
to consider it on a Rule 12(b)(6) motion, and courts
frequently do. See 5 Wright and Miller, supra, Secs. 1277,
1349, 1357 and cases cited therein.

     The issue raised by the Government appears to be potentially dispositive. As suggested in Pepper-Reed, it is logical and efficient to consider the matter at this time. Accordingly, we consider the motion to dismiss herein.

    The Government does not contest the Boards jurisdiction to address Appellants claim for reformation of Contract No. V650C-617. Instead, the Government asserts that, by failing to timely assert a violation of the FAR, Appellant waived the right to challenge the validity of the contract on the basis of its award procedure, even if it is assumed that FAR clauses were actually violated. Whittaker Electronic Systems v. John H. Dalton, 124 F.3d 1443 (Fed. Cir. 1997). Appellant argues, on the other hand, that this matter is governed by LaBarge Products, Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995).

    In Whittaker, the negotiated contract involved the development of radar simulators for the U.S. Air Force. The contractor, Whittaker Electronic Systems (WES), argued that the contract was void ab initio because it contained a certain option clause, which placed "undue risks" on the contractor, in violation of DAR regulations. The court stated that because the contractor failed to make a timely objection to the option clause, raising the "undue risk" it believed was improperly allocated to it or asserting a violation of the regulation, the contractor waived the right to challenge the validity of the contract under the DAR. The court also stated:

The doctrine of waiver precludes a contractor from
challenging the validity of a contract, whether under
a DAR or on any other basis, where it fails to raise the
problem prior to execution, or even prior to litigation,
on which it later bases its challenge.
 

    LaBarge Products, Inc., involved a contractor claim for reformation of its negotiated contract with the U.S. Army to provide a quantity of pipe couplings. There, declining to award a contract to LaBarge Products, Inc. (LaBarge) at its initially proposed low base unit price of $38.50 per coupling, the Army requested best and final offers. LaBarge was awarded the contract at its best and final offer price of $32.90 per coupling. Following successful contract completion, LaBarge submitted an $800,000 claim to the Army in which it sought to have the per unit price in the coupling contract reformed to the $38.50 per unit price contained in its original proposal. LaBarge asserted that reformation was necessary in order to compensate it for improper acts of certain Army personnel involved in the procurement, including an alleged conspiracy to direct the contract to another company. LaBarge claimed that, but for improper conduct, it would have been awarded the coupling contract at its higher, initial proposed price.

    In dealing with what amounts to a waiver issue, the court stated:

According to the government, LaBarges allegations
of government misconduct are the kind of allegations
that are ordinarily made in pre-award bid protests, not
after award of a contract. However, if government
officials make a contract they are not authorized to
make, in violation of a law enacted for the contractors
protection, the contractor is not bound by estoppel,
acquiescence or failure to protest. [Citations omitted.]
In cases in which a breach of law is inherent in the
writing of the contract, reformation is available
despite the contractors initial adherence to the
contract provision later shown to be illegal.
 

    The court went on to state that "LaBarge was not harmed by the disclosures in any concrete way contemplated by the FAR and, therefore, is not entitled to relief." However, we are not concerned here, in ruling on the instant motion, with the merits of this matter.

    After consideration of the parties arguments, we are persuaded that LaBarge applies in the instant case. There, as here, the contractor made a proper claim under the Contract Disputes Act (CDA) for reformation of a contract based on procurement regulation violations and the court found that waiver (actually, "estoppel, acquiescence or failure to protest") did not apply. In contrast, the same court in Whittaker, dealing with a claim seeking to declare the contract void ab initio following performance of the contract, found that waiver did apply. Since the appeal before us involves reformation, we find LaBarge to be controlling. Promac has properly asserted a claim under the CDA for reformation of the contract and as such has a right to be heard on the merits of its case.

Date: May 5, 1998                                             ___________________________
                                                                          Morris Pullara, Jr.
                                                                          Administrative Judge
                                                                          Panel Chairman

 
We Concur:

___________________________                         ___________________________
Guy H. McMichael III                                      Richard W. Krempasky
Chief Administrative Judge                             Administrative Judge